CPAR

CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
MANAGEMENT ADVISDTiY SERVICES Saturday, July 2 i, 201 l)
1:00 Pm to 3:00 Pm
First Pre-board Exan'inatiorr
Set A

fnsffuctions, Choose the BEStr' answer fcir each of the following items' Mark only
one answer for each item on the Special Answer Sheet provided. Strictly no erasure
allowed. Use Pencil No. 1 onlY.
"Tales'"
1. Story Manufacturing incurs annual fixed costs of P250,000 in producing and selling
Estimated unlt sales for 2013 are 125,000. An after-tax inccme of P75,000 is desired by
management. The company projects iG incorne tax rate at 40 percent' What
is the
maximum amount that Story can expend for varianle costs per unit and still metlt
it<' Irr'r(it

objective if the sales price per unit is estimaied 3-; P6?

a. P3.37 c" P3.00
b. P3.s9 d. P3.70

2. The process of choosing among competing aiternatives is called

a.controlling c. decision making
b.planning_d.pedormanceevaluation
3, Which of the folio'*ing is a not a characteristic of management accounting?
a. Internal focus c'
Subjective information may be used
b. Broad-based and multidisciplinary ti.
Historical orientation

IT'EMS 4 AND 5 ARE tsASED ON THE FCLLOWING:

Castelg, Villasin and Barrera is a large, local accounting firm located in Cebu' Belle Castelo,
one of the Firm's founders, appreciates the success her firm has enjoyed and wants lrr rlivtl
something back to her community. She believes that an inexpensive accoutttin'| ;Ir','i':':'
clinic could provide basic accounting services for small businesses located in the province'
She wants to price the s.:;"u'ices et cost.

it has no experience to go on. Belle decided to operate the

Since the clinic is brand new,
clinic for two months before determining how rnuch to charge per hour on an ongoing
basis. As a temporary nteasure, the clinic adopted an hourly charge of P50, half the amount
charged by Castelo, Villasin and Barrera for professional services.

The accountrng seruirtes clinic opened on January 1. Durlng January, the clinic had 120
hours of prolessional service. During February, the activity was 150 hours. Costs for these
two level of aciivity usage are as follows:

Professional hours 120 hours 150 hours

Salaries:
Senir.rr accountant P2,500 P2,500
I ,,ta.rJ
Office assistant i,200
Internet and sofhruare subscriptions 700 8s0
Consulting by senior pai'tner 1,200 1,500
Depreciation (equiPment) 2,440 2,440
Supplies 905 1,100
Administration 500 500
Rent (offices) 2,000 2,000
Utilities 332 365

4. The clinic's rnonthiy fix::d r:asLs arnount to:

a. P8,60] c. P 425
b. P9,025 d. P12,189
 CPAR MANAGEMENTADVISOII\,
..I .
'
First Preboard Examinaiion - July 27,20i3 Page z. vt i, pirgc;

5. Apple tsaby, the chief paraprofessional of the clinic, has estimated that the clinic wrll
average 140 professional hours per month. If the clinlc is to be opt:rated as a nonprofit
organazation, how much will ii. need to charge per Drofessicne,i hour?
a. P97.81 c. P82.V7
b. P87.06 d. P22.6A

6. Historical experience, engineering studies, and input from operating personnel are three
potential sources for quantitative standards. Aithough historical experience may provide an
initial Euideline for setting standards, it should be used with caution because
a. most companies have very poor records.
b. ideal standards are better than historical srandards.
c" they may not be achievable by operating personnel,
d. they may perpetuate operating inefficiencies.
7. Which of the following characteristics distinguishes cumputer proCessing frurrr rlorrr,.rrl
processing?
a. Compute' processing virtr"rall:r nilrninates the occui'tence of computational error
nnrmally associated wlth i,ranual prccessing.
b. Errors or frar.rd in computer prccessing will be detected soon after their occurrences.
c. The potential for sysfennatir error is ordinarily greater in manual processing than in

d. irt#i1Tffi13JT;,:H; are desisned so that trcnsaction rrairs userur ror audit

purposes do not exist.

8. What type of computer systern is characterized by data that are assembled frem more than
one lercaticr: ancl records that are updated inrmediately?
a. M icroco nr puter systern c. Batch processing systern
b. Minicornputer system d. Cnline real-time system
9. The local video store's business increased by Llo/o after tlre movie theater raisert ;lr ;1,i, r:.1
from P300 to P400. Thus, relative to rnovie theater aclmisslons, viderls are
a substitute goods c" complementary goods
b. superior goods d. public goods
10.In national incorne terms, aggregate demand is the
a. demand fo,r money by a community in a period of full employrnent.
b. total xpenditilre on capital gaoe-ts by entrepi':nuurs during a reriod of full
employrnent.
c. dernancj that is needed if the country's econorny is to operate at optimum level and
the levet of investment is to be raised.
d. total expendltures o;l consurner goods and invesi!'rient, incluClng eovernment and
foreiEn expenditures, during a given perioo"

11. Which of th,'.r fcrllowing staternents is correct?

a.MAS is confined only to such areas as ijnanciel accililntirig, auCiting, and tax services.
b. Because the MAS practitioner must be indep*r,dent, he rnrrst rrot allow thr r'trr.nl trr
participate in any phase of his engagement.
c. Althcugh MAS extends beyoncl the tradii:isnal accounting senrie*s, CPAs in the MS
practice are stiil bound by the rules of professional erhics ir: the practice of accounting
in genera!.
d. CPAs provide manaEement services to go around the ethlcal constraints as mandated
by the A.ccountanry Act.

12. Producer Company makes two prodr:cts, X and Z. X is being introduced this period, whereas
Z has been iri production for two years. Far the period atrotrt to hegin, 1,000 units of each
product are to be manufarlured. Assume that the only reie,rant overhea,l item is the cost of
engineerinq change orders; that X and Z arF expecJed tr: recuire eiqht and two change
orders; that X and Z are expected to require 3 anci 2 :no.:l ire itours, respect;velyj and that
the cost of a change order is P600" If Producer appiies enciine*rir,, change order costs on
CPAR MANAGEMENT ADVITiotT t
Page 3 of 8 pages
First Preboard Exarnination - July 27, 1013
the basis of machine hours, the cross subsidrl per unit arising from this peanut butter-
costing approach is
a. P1.20 c. P3.60
b. P2.40 d. P4.80

13. How will a favorabie ryclumr: variance aff',ect r;et income under each of the following
methods?
Absorption Variahle
a. reduce no effect
b. reduce increase
c. increase no effect
d. increase reduce

14. Consider the e,:uation X = Sales - [(Cvll5ales] x (Sales)1" What Is X?

a. net income c. contribution margin
b. fixed ccsts C. variable costs

15, As projected n;t income increases the

. a. degree of operating leverage declines. i" break-evert point gces down.
b. margin of safety stays constant, d. contribution margin ratio goes up.

ITEMS 16 TO 18 ARE BASED ON THE FCLLOWiI'IG:

The following information is available for X Cc. fo;' its first year of operations:
Sales in units S,iiflO
Productlon in units B,i:00
Manufacturing costs:
Direct labor P3 Per unit
Direct material 5 Per unit
Variable overhead 1 Per unit
Fixed overhead P1.00,000
Net incorne (absorption method) P30,000
Sales pric:e per unit P40

16. What would X Cr:. have repofted as its income before income taxes if it had used variable
costinE?
a. P30,00C c" P67,500
h. (P7,s00) c. from the siven
i.3-l#,,Xir.rmined

17. What was the total amount si SG&A exllense incur,"ed by X Co.?
a, P30,000 c, P6,000
b. P62,500 d. can't be determined from the given
information

18. Based on variable costing, what would X Co. show as the value of its endinS invrtt"' ;
a. P120,000 P?7,400 c.
b. P 64,500 d. P24,A00
19.The most likely strategy to reduce tire break-even point would ne
a. increase both Lr e rlxed costs ana '-ite c.;nl-ibtrtiorr margin
b. decrease both the fixed costs and the contribution margin
c. decrearse the irxed costs and increase the contribution mai-gin
d. increa-se the lixed costs and decrease the contribution margin
20. Which of the fcrilowing is an advantage of using variaLrle costing?
a. \.lariable costing complies with Generally Accepted Accounting Principles.
b. Variable cosiing complies with the National Internal Revenue Code.
c. Variable costing is most relevant to long-run pricing strategies.
 CPAR MANAGEMEhIT ADVISOR Y bLnv IULo
First Preboard Examination - July 27,2013
__-_-- Page 4 of I prqgn
_
d. Variable costing makes cost-volume-profit relationships more easily apparent.

21. Uniformly assigning the costs of resources tn cost objects when those resources are actualty
used in a non-uniform way is called
a. overcosiing. e. peanut-butter costing.
b. undercosting. d. depaftment costing.
22. The standard direct materials cost to produce a unit of a product is four meters of materials
at P2.50 per meter. During June, 2009, 4,2AA nreters of materiais costing P10,080 were
purchased and used to produce tr,000 units of the product. \Iihat was th* materials price
variance for June, 2009?
a. P480 unfavorable c. P400 favorabte
b, P 80 unfavorable d. P420 favorable

23.Chubby Compeny's tcrtal costs of operati:rg five sales offices last year were P500,000, of
which P430,000 represented variabie costs, Chubby has eleterrnined that Lotai costs are
significantly influenced by the number of sales offices cpei"ateel" Last year's costs and
number of sales offices can be used as the bases for predicting annu;:l costs" What would
be the budgeted costs for the comlng year if Chubby were to opr;i'tsi* eiqht :;aies oifices?
a. P800,00il c. P688,000
b. P759,000 d. P 70,000

24. Using regression analysis, Nasty Connpany graphed the following reiationship of its cheapest
product line's sales with its customert income levels:

Sales
Pesos
\ \

Incorne levels increasing

If there is a strong statistical relationship bet.,oeen the sales and custonrers' income levels,
which of the following numbers best represent:; the correlai:on ,:oefncient for this
relationship?
a. +0.93 , -ftQ?
b. - 9.00 d. +9.00

25.In connection with a standard cost systern being developecl bv Paopao Company, the
followinE information is being considered with regarci to stanclarri hours ailowed for output
of one unit of product:
HOURS
Average historical peformance for the past tnree !ears 3./tt
Production level to satisfy average consumer demand over
a seasonal time span 3.20
Engineering estimates based on attainable perfoi-rnance 3.00
Engineering estimates based on icjea! oeformance 2"50

To measure controllable production irrefficiencies, what is; the hest basis for Paopao to use
in establishing standard hours allowed?
a. 3.00 c. 2,5C
b. 3.20 d, 3.7t)

26. A company produces three prociucts; if one procluc; i-: ct.ii,-clt,::,J tnLrn
a. one product is undercosted. c. twc pioiiucts ai'e unrjercosted.
b. one or two products are undercosted. ci. no r:rodu;t- is r;ndercosted.
CPAR MANAGEMENT ADVISORY SERVICES
First Preboard Examination - ialv 27,2A13

27. Spikey Corni;any iicduces two products: Pat and Chin. The projected income for the
coming yearl ssgitrented by product line, fc'llowl
Fat Chin Total
Sales P3*0,000 P2,500,000 P2,800,000
Less variable expenses _1AA004 _ 500,000 600,000
Contributior margin P200,000 P2,000,000 P2,200,000
Less direcr fixed exPenses 28.000 1,500,000 1.528.000
Product margin P172.000 P-_59CI.99! P 672,A00
Less common fixed cost 100,000
Operating income P 572.000
The selling prices are F30 for Pat and P50 for Chin.

Spikey company can increase the sales of Pat with increased advertising. The extra
p245,000, and some of the potential purchasers rrf Chin
advertising wouta cost En edditional
sales of Chin
wourld switch to pat. .Ln total, sales of Pat vuould increase by 25,000 units, and
would dect'ease b), !i,C00 units. This strategy wculd
a. increase Spikeryt totai sales by P750,003.
b" decrease Spikey's total contribution margin by P300,000'
c. increas,e Spikev's total income by P55,000.
d, not affect Spikcy's total fixed costs.
28. Which of ttie fc,llowing standard costing variances would be least controllable by a
production supervisor?
a. aterial usage c. overhead volume
b, overheaC efficiencY d. labor efficienry
29. Merriman Company provides the foliowing ABC costing lnformationt
A"tirtty_"urt
Activities Total Costs driverc
Account inquiry hours P400,000 10,C00 hours
Account billing lines P280,000 4,000,000 lines
Account verifi cation accounts P150,000 40,000 accounts
Correspondence letters P 50,000 4,000 letters
Total costs P880.000

The above actlvities are used by Departments A and B as follows:

DepartmentA DePaftment B
Account inquiry hours 2,000 hours 4,000 hours
Account billing lines 400,000 lines 200,000 lines
Accounl verifi cation accounts 10,000 accounts 8,000 accounts
Correspondence letters 1,000 letters 1,600 letters

How much of the tota! costs will be assigned to Department A?

a. V224,00'J c.
P158,000
b. P80,000 d. P880,000

30. Buchoy Company rnanufactures one product with a standard direct manufacturing labor c<.rst
.i
of for-:r hours pfZ.OO per hour. During June, L,000 units were produced using 4,100
hours at P12.20 per hour. The unfavorable dii'ect labor efficiency variance was:
a. P820 {:. P1,200
b. P400 d. PL,22.0

31. The determination of a cost as either direct or indirect depends upon the:
a. accounting systern cost object chosen
b. allocation system d. cost tracing sYstem
 CPAR MANAGEMENT ADVISORY SERVICES
First Preboard Examinatior.l - July 27,2A13 Pase LoJ g p$9!-__

ITEMS 32 TO 36 ARE BASED ON THE FOLLO\IJING:

Vhong, Inc. evaluates manufacturing overhead in its factory by using variance analysis. The
following information applies to the month of Jr.lly:
ACTUA!. BUDGETED
Number of units produced 1"9,000 20,000
Variable overhead costs P4,100 P2 Ber direC labor hnur
Fixed overhead costs P22,000 P20,000
Direct labor hours 2,100 0,1 hour per unit

32. The controlleh,l,:: ,,rariance arn*unts ta

a. P2,500 unfavorabie i" P2,30C! unfavcrable
b. P1,000 unfavorable d, P2,000 unfavorabie

33. Using the three-rruav variance analysis, the spending variance amounts to
a. P100 favorairle c.P2,000 unfavorcble
b. Pl,900 unfavorable d. P2,100 unfavorable
34. The efflciency, varianee amounts to
a.
P400 unfavorable c. P400 favorable
b. P1,900 unfavorable d. P1,000 unfavorable

35. The non-contr'*liabie variance is

a. P2,300 unfavorable c. P2,000 unfavorable
b. P400 unfavorable d, P1,000 unfavorabie

36. The fixed nverhead efiiciency variance is:

a. F400 uniavorable c. P40C fa'vorable
b. PP2,000 r.lnfavorable AA
(,i, u

37. The primary purpose of management advisory se-"nrices is

a. io achiev* the objectives of the MAS firr,r.
b. to help the client maxirnize its resources"
c. to impro"ue the client's use of its capahilities and r*rCIurces to achierre the objectives of
such c!ient's organization.
d, to help the client identrfu its problems.
38. Which of the following statements is FAI_SE,)
a. FixeJ ;*sts have cost drivers over the shoft run.
b' There ilr a cause-and-effect relationship between the cost clrirrer and the level of
activjty.
c. Over ihr: long run all costs have cost Criver-^,
d. Volurrre of production is a cost driver of direct nianrrfactt.rrinq r-cst:;.
39. Iking company uses a standard costing systern in connection with the manutadure or a
"one $i7e flts a{1" product matje of rubber" Each unit of finished procluct contains two feet of
direct material. However, a 20o/o direct material spoiiagr calrulated on input quantities
occurs during the manufacturing pi'ocess. The cust oi ti:r: cirett irrateriai is il3 per irrct. I he
standard direcr. rnaterials cost pei rlni'c of finished product is:
a. P7.50 c" pt.ZO
b. P6.00 d. P4.80

40. A majr:r acccunting cnntributio;r to tl're rnanageriai

dec;sion-rni:F.ing process in evaluating
possible coutse$ of action is Lo
a. decide whicli actions the rnanagement shoult_i consider-.
b. determine the amount of money that should be spent on a oroject.
c. assign responsibility for the decision.
d. provide relevant revenue and cost data about eaeh course of acticn.
CPAR MANAGEMENT AOVISORY SERVICES
First Preboard Examination - July 27,2Afi Page 7 of 9f:gS:. --

ITEMS 4I tO 43 ARE BASED ON THE FOLLOWING INFORMATION:

Rocel Company is a manufacturer of electronic su/itches. One of their products, "Sensory
Switch," is used as a component of most eleCrical appllances.

Sensory Switch has the following financial data per unit:

Selling price P180
Variabie costsr
Materials ?24
Labor 18
Factory overhead 15
Shipping and hanciling -- i P 60

Fixed costs: Factory overhead P36

Selling and administrative JA -P110
50
fotal
During the month, Rocel has receiv*d a special, one-time order for 1,500 units of Sensory
Switch.

41. Assuming that the company has excess r;apadi$ that is enough to produce this special order
without affecting sales to regular customers, and the company wants to improve its
profitability, the price that is acceptaL;i:: for this special, one-time order is in excess of
a. P180. c" P60.
b. P110. d. P50.

42. Assume that Rocel is operating at full capacity and that it does not want to incur,l lo5'l fr';111

this order, the minimum acceptable price is

a. P180. c. P60.
b. P110. d. P50.

43. Assume that the excess capacity available for the special order is only 1,000 units, so thaL if
the order were accepted, Rocel would have to reduce sales to regular customers. What is
the minimum price for this special order?
a. P1.80 F 60 c.
b" P110 d. ilicc
44. A linear cost function can represent:
a. mixed cost behaviors c. variable cost behaviors
b. fixed cost behaviors d. AII of these answers are correct.

THE FOLLOWING INFORMATION APPLIES TC QTJESTIONS 45 AND 46:

Mark's S-year-old Lancer requires repaii"s esi;mated at P3,000 to make it ', i , i

again, His friend, Mickey, suggested that her should buy a S-year-old used Honda Civic
instead for P3,000 cash. Mickey estirnated the following costs for the two cars:
Lange,rH*o-ng8a-ffi
cost
Acquisition P600,000 P120,000
Repairs P120,000
Annual operating costs
(Gas, maintenance, insurance) P 91,:100 P 84,000

45. The cost NOT relevant for this decision is the:

a.acquisitlon cost of the Lancer
b" acquisition cost of the Honda Civic
c.repairs to the Lancer
d. annual operating costs of the Honda Civic
CPAR MANAGEMENT ADVISORY SF RVICF S
Page q_ol 9.1',aou.
First Preboard Examination - July 27,2413 -

46. What should Mark do? What are his savings in the first year?
a. Buy the Honda Civic; P391,200
b. Fix the Lancer; P220,720
c.Buy the Honda Civic; P7,200
d. Fix the Lancer; PZLL,Z0A
47. For decision making, a listing of the relevant costs:
a. will help the decision maker concentrate on the pertinent data
b, will onty include future costs
c. wilt only include costs that differ among alternatives
d. All of these answers are correct.
48. DSP Company earned P100,000 on saies of P1,000,000. It earned 130,000 on sales of
P1,100,000. Contribution margin as a percentage of sales is
' a. 30o/o. c. 70o/o.
b. 40o/o. d. 904/o.

49. lvlNo has a break-even point of 200,000 units and earns a P100,000 profit at sales of
250,000 units. Which of the following :s true?
a, Fixed costs are P100,000.
b. Total contribution margin at 200,000 units is P400,000'
c. Profit at sales of 300,000 units is P120,000.
d. Selling price per unit is P2,
50. What factor, related to manufacturing costs, eauses the difference in net earnings computed
using absorption costing and net earnings computed using variable costing?
a. Absorption costing considers all costs in the determination of net earntrtrl'
variable costing considers fixed costs to be period costs.
b. Absorption costing allocates fixed overhead costs between cost of goods sold and
inventories, and variable costing considers all fixed costs to be period costs.
c. Absorption costing "inventories" all direct costs, but variable costing consider:; ditet:t
costs to be period costs.
C" Absorption costing "inventories" all fixed costs for the period in ending finished goods
inventory but variable costing expenses all fixed costs.

the ewd -